Software for Data

[Cassandra Alessio]

Good Morning,

Does anyone have any recommendations on software and/or websites they use for data? I am trying to find one that can examine the cities in each state to determine the need for rentals/population growth/economy etc. Is there a software that investors use or do you just do your own research for each town?

Thank you!

[Eric Fernwood]

Hello @Cassandra Alessio,

Before starting your selection process, you need to define your goal. For most people, the goal is financial freedom. Financial freedom requires a passive income that meets three requirements:

• Your income keeps pace with inflation: Financial freedom is more than just replacing your current income; it's about maintaining your current lifestyle for life. Inflation continually erodes the purchasing power of a fixed amount of money. What you can purchase today for $100 will require $155 in 10 years if the inflation rate is 5%. The only way to sustain your current lifestyle is if rents keep up with inflation. If rents don't keep up with inflation, your financial independence will be short-lived.
• Persistent: You will not outlive your income.
• Reliable: You need to be able to rely on the rent coming in every month, regardless of the economic situation.

Choosing an Investment Location

The location is the most important investment decision you will make, not the property itself. The question is, "Which city?”

There are too many cities to evaluate all of them so I suggest using the process I followed when I selected a city to start my investor service business. The process begins with a list of potential cities and then eliminates any city that does not meet additional requirements. The steps and resources are as follows:

• Cities with a population >1M: Start with cities with a metro population greater than 1M. Small towns may rely too much on a single business or market segment. Wikipedia
• Sustained and significant population growth: Prices and rents are a function of supply and demand. Demand is driven by population growth. Where there is sustained and significant population growth, the current housing supply will not meet demand so prices rise until the number of sellers roughly matches the number of buyers. Where population growth is stagnant or falling, the current housing supply is sufficient so there is little increase in prices. Rents are driven by property prices. Where prices are low, more people can buy so there is little demand for rentals so there is limited or no rent growth. Where prices are higher, more people are forced to rent so rents increase. In the best locations, rent growth outpaces inflation. Never invest in any location with a static or declining population Wikipedia.
• Low crime - A rental property is no better than the jobs around it. And, it is not just the current jobs. The average lifespan of a company is ten years, and an S&P 500 company only has an average lifespan of 18 years. Every job your tenants have today will disappear in the foreseeable future. Without new companies moving into the city and creating replacement jobs, the only jobs left will be low-paying service sector jobs. Companies wanting to set up new operations will not choose high crime cities. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any city with rent control. Use Google search.
• Low operating cost - It's not about how much you gross, it's about how much you net. Every dollar lost to operating costs means one less dollar for you to live on. The two most significant operating costs are property taxes and insurance. Operating costs vary significantly by state, so keep this in mind. Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

At this point, you will have a small number of potential investment cities for further consideration.

One other location criteria I would have is an experienced local investment team. The problem is that everything you learn from podcasts, books, seminars, and websites is general knowledge. But you will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.

Working with an investment team usually does not cost more. For instance, we have delivered over 480 properties and charged our clients a fee on only four or five of them, and only in exceptional circumstances. In all other cases, the fees were paid by the seller's listing agent, not by our client.

By working with an investment team, you also receive real world investment training at no cost to you.

If you would like information on how to find and qualify an investment team, let me know.

Cassandra, I hope this helps.